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Should you Buy Your Housing Association Home?

shutterstock_157980959One of the pledges made by the Conservative Party in their 2015 election manifesto was to give all Housing Association tenants in England the right to buy their home.

Although 800,000 tenants had this right already, the proposals will offer an additional 500,000 people living in social housing the chance to get on the property ladder.

With rising house prices and skyrocketing private rents, the ‘Right to Buy’ scheme could offer more than a million households the chance to benefit from owning their own bricks and mortar.

If you are one of the lucky few, should you take the plunge?

Big Discounts Available
One of the big advantages of the ‘Right to Buy’ scheme is that it will give long term tenants a discount on buying their home. Often social tenants earn lower than average wages, so this may be their only opportunity to buy.

Those who have been living in a Housing Association property for 3 or more years will be eligible, with a 35% discount offered to those living in a house, and a 50% discount for apartment-dwellers.

Tenants who have been living in their home for longer than 3 years can also benefit from an extra discount of 1% per year of their rental term. If they live in a flat, the discount rate is doubled to 2%.

However, the maximum discount available on any single property will be just over £102,700 in London and £77,000 for the rest of England.

Not All Tenants Will be Able to Take Advantage of the Offer
Housing association tenants who want to take advantage of their right to buy will have to purchase their home at the market rate (minus the discount).

For areas where the property market has risen rapidly (especially London), tenants may find that they simply cannot afford to buy, even with the maximum discount.

A small 2-bedroom flat in London may be worth £500,000, which, subtracting the maximum discount, would mean getting a mortgage for £393,000. Most people on low or average incomes would struggle to be approved for, or pay, such a large mortgage.

A Golden Opportunity for Some
However, those residents who live in lower-priced areas beyond London and the South East of England may find that the ‘Right to Buy’ scheme offers a golden opportunity to buy.

Older residents with some savings would be able to access the best mortgage rates, while others with steady jobs may find that the higher mortgage payments in the short term benefit them financially in the long term.

Are You Ready to Buy?
Buying your home through the ‘Right to Buy’ scheme means that you will have to go through the same process as anyone else seeking to buy their own property.

You will need a deposit of at least 5% of the (discounted) value of the property, plus extra savings to cover solicitors’ fees, stamp duty (if applicable) and other expenses (up to about £5,000).

Remember that the mortgage lender will want to check your financial situation carefully before they approve a mortgage (new rules came in last April).

In the Know
One of the big advantages of being a tenant is that you already know the physical state of your home. This can help to prevent nasty surprises when it comes to maintenance.

You will also know the area and perhaps have links with the local community, so buying will allow you to stay in an area you know and like.

Would You Be Better Off?
If you do have enough money to cover a deposit and fees, you should consider whether you would be better off financially as an owner.

If you live in an apartment, would you have to pay extra maintenance fees for your flat once you own it? Would your mortgage payments be much higher than your current rent?

Could you afford to pay for necessary repairs and renovations that you are not liable for at the moment? It is worth thinking about these issues carefully.

Unforeseen Stresses and Strains
The very first couple who bought their council home under Mrs. Thatcher’s ‘Right to Buy’ scheme in 1980 were Mr. and Mrs. Patterson from Romford in Essex. They qualified for a 40% discount on their home and bought it for £8,315.

Unfortunately, the pair were both on low wages and struggled to pay the mortgage and household bills. The pressure resulted in divorce, leaving Mrs. Patterson to shoulder the debt and bring up her two children on her own.

Make Sure You Understand the Implicationsshutterstock_158636723
While buying your own home does not inevitably lead to disaster, it is better to understand the financial implications of a mortgage and home ownership before you take the plunge.

Speak to a financial advisor to ensure that you have all the facts before you make a decision. Also, make sure that others do not pressurize you into buying your home as part of some kind of ‘get rich quick’ scheme, as happened to some people in the 1980s.

Greater Control Over Your Life
However, for those of you who can afford it, buying your own home can have a lot of advantages.

First among these is a sense of continuity. You can live in your own home for as long as you want to. You can bring up your family in an area you already know, and will have greater control of your home.

Any restrictions over home decoration will be removed, and you will have the same rights as any homeowner to renovate and change your home to suit your needs.

A Good Time to Buy
With mortgage rates at a record low, now is good time to buy. Nationwide Building Society currently offers a first time buyer mortgage (90% LTV) fixed for 10 years at 4.79%, falling to 3.99% after that.

Property can be a valuable asset for those with a small pension pot and can provide a degree of financial security for those who have not benefitted from it before.

The decision, dear tenant, is yours.

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